The Bank of England warned on Thursday of "increased uncertainty" over its stance interest rates pending after inflation moved further above the target, even at a time when the UK economy is stagnant at best.
The Bank of England's nine-member monetary policy committee left the main interest rate unchanged at 4.75%, with new data showing inflation rose to 2.6%, further above the bank's 2% target.
In response, the rate-setting panel, which last cut its key rate in November, is taking a cautious stance as lower borrowing costs could potentially boost inflation further.
The decision was widely expected in financial markets, but surprisingly as many as three members voted for a quarter-point cut. This could indicate further tapering at the next meeting in February, unless there are any major inflation surprises.
"We need to make sure we consistently meet the 2% inflation target," said Bank Governor Andrew Bailey, who voted to keep rates on hold. "We think a gradual approach to future rate cuts remains appropriate, but with increased uncertainty in the economy, we cannot commit to when or by how much we will cut rates next year."
Struggling sectors of the UK economy and homeowners are hoping for further cuts next year to bring some relief. The UK economy has now contracted for two consecutive months.
"The Bank's decision to keep interest rates unchanged, while expected, will still be a tangible blow to households struggling with burdensome mortgage bills and businesses facing a spike in costs after the autumn budget," said Suren Thiru, the institute's chief economic officer. of Chartered Accountants in England and Wales.
Get weekly money reports
Get expert insights, questions and answers on markets, housing, inflation and personal finance information delivered to you every Saturday.
The bank's decision comes a day after the U.S. central bank cut interest rates, but Chairman Jerome Powell signaled the Fed would slow the pace of rate cuts after inflation forecasts were revised higher.
Minutes from the Bank of England's decision show that rate-setters warned about the economic outlook in the wake of the new Labor government's first budget and the outcome of the US presidential election.
Critics say the October budget has both heightened inflationary pressures and dampening growth. Large increases in business taxes may prompt companies to offset higher costs by raising prices or cutting back on hiring. The government says it needed to raise taxes to shore up public finances and put money into cash-strapped public services.
And after Donald Trump returns to the White House in January, there is uncertainty over whether the incoming US administration will impose tariffs on imports, an economic strategy that could lead to a backlash that will fuel inflation and reduce growth.
Still, inflation in the UK and around the world is much lower than it was a few years ago, partly because central banks dramatically increased borrowing costs from near zero during the coronavirus pandemic when prices started to rise, first as a result of supply. chain problems and then due to the large-scale Russian invasion of Ukraine, which increased the cost of energy.
As inflation rates have fallen from multi-decade highs, central banks have begun to cut interest rates, although few, if any, economists think rates will fall back to the very low levels that persisted in the years after the global financial crisis. crisis in 2008-2009.
© 2024 The Canadian Press
Source link